‘Super Mario’, the European Central Bank’s monetary magician, disappointed markets yesterday as continuing and unprecedented monetary easing failed to prevent a sharp sell-off in stock and bond markets which has continued today.

ECB President – nicknamed ‘Super Mario’

There are sharp losses on financial markets after the ECBs President’s – nicknamed ‘Super Mario’ and more recently ‘Magic Mario’ – latest radical measures stopped well short of market expectations and traders desperation for more cheap money and deepening ultra loose monetary policies.

Draghi announced a deepening of probably the most radical monetary policies of any major central bank in history.

The ECB will extend its massive 60 billion euro ($63.5 billion) a month money printing, or debt monetisation, scheme to at least March 2017, an additional six months. Debt monetisation will now include both regional and local government debt and be reinvested upon maturity.

The ECB cut its deposit rate to a historic low and further into negative territory by 10 basis points to a fresh low of negative -0.3 percent, down from -0.2 percent. The cut means banks in effect must pay more for the ECB to hold their money. The ECB kept its main refinancing rate (or the price that banks pay to borrow funds from the ECB) unchanged at an unprecedented, essentially 0 percent – exactly 0.05 percent.

While stocks and bonds fell, gold rose and the euro surged 3% against the dollar. Disappointment rattled stock markets on both sides of the Atlantic, with many European indices suffering their worst day since the chaotic August 24 rout. The benchmark S&P 500 fell into negative territory for the year again.

Gold bullion prices rose 0.8% in dollar terms – the biggest one day rise in two weeks – after the ECB announcement. Although gold is being oversold it was due a bounce. Gold in euro terms fell 2.3% and is now marginally lower for the year to date – down 0.7% year to date to €978 per ounce – see table.

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Bond markets sold off very sharply yesterday. The benchmark 10-year bond yields of Germany, France, Italy, Spain, Portugal and the Netherlands all jumped by more than 20 basis points. Even the US Treasury market took a battering with the 10-year Treasury yield jumping 15 basis points to 2.38 percent — its biggest one-day rise in over two years.

“The value of the U.S. fixed-income market slid by $162.5 billion on Thursday while the euro area’s shrank by the equivalent of $107.5 billion” according to Bloomberg.

Many analysts noted that the stock and bond market routs reflected the fact that speculators had bet too heavily on a further aggressive expansion of QE and money printing by the ECB. Risk assets are now extremely dependent on the drug that is ultra loose monetary policies, which does not bode well for their outlook in 2016 and the coming years.

The ECB has made it clear that its ultra loose and extremely “accommodative” policies can be expected to continue for some time to come which will be supportive of gold in euro terms at these depressed levels.

The continuation of the ECB’s and other major central banks radical monetary experiment shows how vulnerable our economies are and how they remain very exposed to shocks in the Eurozone and indeed from outside shocks.

Significant global macroeconomic and geopolitical risks remain and may scupper the vulnerable Eurozone economy and indeed the global economy underlining the need for conservative asset allocation